Thakker v Northern Rock Plc

In a mortgage possession claim, an unliquidated damages claim pleaded as equitable set-off does not constitute a legal defence to the mortgagee’s right to possession. That principle applies unless the mortgage contract or statute limits the mortgagee’s immediate right to possession.

Breaches of regulatory rules governing regulated mortgages do not make the mortgage transaction void or unenforceable. They therefore do not defeat the legal right to possession. Such breaches may be relevant at the discretionary stage, when the court considers whether to suspend or stay execution of a possession order and assesses any resulting loss.

The appellants appealed against an order of HHJ Charles Harrison QC declaring that their counterclaim did not provide a legal defence to Northern Rock Plc’s claim for possession of their mortgaged property.

The appellants alleged negligent lending and breaches of the Mortgage Conduct of Business rules in relation to further advances. Their only pleaded defence to possession was equitable set-off based on an unliquidated claim for damages. The central issue was whether the regulatory regime displaced the principle in National Westminster Bank Plc v Skelton [1993] 1 All ER 242.

1. Appeal dismissed. The declaration that the appellants’ counterclaim afforded no defence in law to the possession claim was upheld.
2. Mortgage possession claims ordinarily proceed in two stages. At the first stage, the court determines whether the mortgagee has a legal right to possession. A sustainable legal defence, such as fraud or invalidity of the mortgage documents, prevents summary determination of that right. At the second stage, the court may exercise discretion to suspend execution or stay possession, including pending determination of a counterclaim.
3. Following and applying National Westminster Bank Plc v Skelton [1993] 1 All ER 242, and the principle in Mobil Oil v Rawlinson (1981) 43 P&CR 221, an unliquidated counterclaim or equitable set-off cannot by itself defeat the mortgagee’s right to possession. A possible claim for a quantified sum capable of discharging the mortgage debt was left undecided and did not arise on these facts.
4. The regulatory rules did not create a legal defence to possession. Section 151(2) of the Financial Services and Markets Act 2000, now re-enacted in section 138(e) of the Financial Services Act 2012, provides that contravention of the relevant rules does not make a transaction void or unenforceable. The appellants’ argument would have had that effect in substance.
5. Alleged breaches of the Mortgage Conduct of Business rules could be considered at the second, discretionary stage. They might bear on suspension or a stay of execution and on damages, but did not render the mortgagee’s contractual right to possession unenforceable.

• High Court (Queen’s Bench Division): appeal from the order of HHJ Charles Harrison QC dated 19 September 2013. The appeal was dismissed.